Proactively managing your allowances can help you maximise your savings and investments
Tax is an unavoidable part of life for anyone earning above the UK Personal Allowance threshold. However, the government offers various tax allowances each year that can help you keep more of your hard-earned money. Understanding and using these allowances is crucial for improving your financial efficiency.
Many of these allowances function on a ‘use it or lose it’ basis. This means that if you don’t utilise them within the current tax year, which ends on 5 April, the opportunity is lost and cannot be carried over. As we near the end of the 2025/26 tax year, it’s wise to review your finances and identify where you could save, especially considering the updates from the recent Autumn Budget 2025 Statement.
Understanding income and savings
Income Tax is charged on most types of earnings, but several allowances help reduce the amount you pay. The Personal Allowance for the 2025/26 tax year is £12,570, meaning you can earn this amount without paying any Income Tax. This threshold remains the same following the Autumn Budget. If you are married or in a civil partnership and your partner earns less than this, you might be able to optimise your joint tax position by transferring income-generating assets to them.
Furthermore, a Personal Savings Allowance lets you earn up to £1,000 in interest from savings and investments tax-free if you are a basic rate taxpayer. This allowance drops to £500 for higher rate taxpayers and is unavailable to additional rate taxpayers.
A practical way to achieve tax-efficient growth is through the annual ISA allowance, which permits you to save up to £20,000 in the 2025/26 tax year. Any interest, dividends or capital gains earned within an ISA are entirely free from UK tax. The Autumn Budget confirmed that the ISA allowance will stay at its current level for the next tax year; however, from April 2027, you’ll only be able to deposit £12,000 into a Cash ISA each tax year (if you’re under 65).
Pensions and National Insurance
One of the most significant policy changes announced in the Autumn Budget 2025 Statement affecting pension savers was the introduction of a cap on how much of your salary you can sacrifice for pension contributions without paying National Insurance (NI), with implementation scheduled for April 2029.
Your pension is one of the most effective, tax-efficient savings vehicles available. For the 2025/26 tax year, you can contribute up to £60,000 into your pension and receive tax relief on your contributions. This allowance is tapered for high earners, reducing by £1 for every £2 of adjusted income you have above £260,000, and the MPAA could also apply.
National Insurance contributions (NICs) are also deducted from your earnings and are essential for qualifying for certain state benefits, including the State Pension. You will not pay NICs on the first £12,570 of your earnings. For income between £12,571 and £50,270, the rate is 8%, then decreases to 2% on earnings above this threshold. To receive the full New State Pension, you generally need 35 qualifying years of National Insurance contributions.
Capital Gains Tax considerations
Capital Gains Tax (CGT) is a tax on the profit you make when you sell or ‘dispose of’ an asset that has increased in value. Each individual has an annual CGT allowance of £ 3,000 for the 2025/26 tax year. For profits exceeding the allowance, CGT is charged at 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers on residential property, with different rates possibly applying to other assets.
There are legitimate ways to reduce your CGT liability, such as spreading the sale of assets over different tax years or transferring an asset to a spouse or civil partner to maximise both of your allowances. It is also important to report any capital losses to HM Revenue & Customs, as these can be offset against future gains to lower your tax bill.
This article is for information purposes only and does not constitute tax, legal or financial advice. Tax treatment depends on individual circumstances and may change in the future. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available. Investments can fall as well as rise in value, and you may get back less than you invest.
